We are treated daily to news accounts of families suffering from removal of government benefits that such families had come to expect. Today's NYTimes features a community in England facing the loss of a government-provided day-care center. These stories describe the often desperate plight of families suddenly deprived of something that they had come to depend upon. This is the cruel downside of the modern welfare state.
Inevitably, the welfare state, in every country, expands it's reach into every aspect of life. Eventually, with the elimination of private saving and a sense of personal responsibility, the welfare state becomes wildly unaffordable. That's where we are now in most of the Western world. Now comes the painful, but inevitable, process of dismantling the welfare state as the promises run up against reality.
The money has to come from somewhere. No matter how loudly welfare proponents proclaim the existence of this economic right or that economic right (now proclaiming, for example, the right to publicly provided contraception!). Europe now and the US soon will unravel their welfare states, since there is no one out there willing to fund ithem. No doubt the NYTimes will treat us to more stories of families who, having abandoned earlier habits of thrift and self reliance to accept government welfare, now face the withdrawal of those benefits.
There is no limit to the expansion of the welfare state short of catastrophe because those who are it's proponents are unmoved by arguments about incentives and affordability. But, numbers are numbers, so more and more families in the West will be forced to face the harsh realities that the welfare state and it's ultimate dissolution will impose.
Wednesday, March 7, 2012
Tuesday, March 6, 2012
Mark Minervini interview: define and refine your approach
Veteran stock trader and "Market Wizard", Mark Minervini shares his story in an interview with the Your Money Matters podcast.
I thought this interview with Minervini, a largely self-taught trader who transitioned into trading after working as a musician, would make a nice follow up to our recent post on self-education and the school of hard knocks.
Here are some key points Mark makes in this interview:
Related articles and posts:
1. Self education and the school of hard knocks - Finance Trends.
2. Mark Minervini interview via Pradeep Bonde - StockBee.
3. Interview with trading legend Mark Minervini - Global Growth Investor.
4. Charles Kirk interviews Mark Minervini - The Kirk Report.
I thought this interview with Minervini, a largely self-taught trader who transitioned into trading after working as a musician, would make a nice follow up to our recent post on self-education and the school of hard knocks.
Here are some key points Mark makes in this interview:
- "I wasn't always successful. In fact, for the first six years I didn't make any money at all."
- Mark started trading in 1983. He began visiting the library and one day came across Richard Love's book, Superperformance Stocks. Mark spent "the next twenty-seven years" refining his approach.
- Persistence can be more important than knowledge. Learning to trade the stock market can be difficult, and there is a long learning curve. Mark stayed with one approach and spent his time mastering it. "It's not going to happen right away".
- "I don't believe in failures". Instead, Mark says he views outcomes in terms of results. There are desirable results and undesirable results. We try things, we learn, and we make some adjustments while trying again.
- "I made my big mistakes when I had the least amount of money, when I was just starting out". You have to define yourself as an investor or an aspiring trader with a given style, and know that it will take a long time and a lot of work to become a professional trader. However, the work is justified by the rewards.
- You have to review and analyze your results to help build your approach. Minervini did this after an early losing period, and soon gravitated towards a more sound approach to stock selection. Keep a journal and track your trading performance so you can make improvements.
- Is there a certain personality type that makes a standout trader? Mark says he's learned not to judge a book by its cover. As Mark puts it, citing his own experience, "I was a musician, I had long hair, I dropped out of school in the 8th grade...I'm completely self-educated so you might not have bet on my results." Good traders aren't necessarily born, but they are developed over time.
Related articles and posts:
1. Self education and the school of hard knocks - Finance Trends.
2. Mark Minervini interview via Pradeep Bonde - StockBee.
3. Interview with trading legend Mark Minervini - Global Growth Investor.
4. Charles Kirk interviews Mark Minervini - The Kirk Report.
Hallelujah?
The long awaited 1% correction came today. Most of the people have forgotten by now what a correction looks like. Did CNBC report that lots of people have broken their monitor because they thought the monitor has run out of green pixel?
Is this the start of Bear market? I do not know but it is still early for complete trend reversal. For a very short term, say just for tomorrow, I would expect a bounce after such a hard sell. For another, some of the indicators like CCO, ChiOsc and StockRSI are very low for a continued meaningful downturn.
Not to mention that a strong up trend cannot reverse immediately. Indexes will definitely try to test the highs and only when the next attempt fails, we can be sure of reversal. The situation is very volatile and while we may see a green day tomorrow, it is also assured that we will see a lower low in the next few days. It is a good set up if you are a day trader but a lousy one for a swing trader.
With the McClellan oscillator below the zero line for the past 10+ days and standing at -266 level, it is difficult to see further down immediately. So my theory of a bounce tomorrow fits well into this when it can add some height and then continue to sell some more. Problem with this line of thinking is everyone is expecting this set up and the market may throw a curve ball and continue to sell-off.
Gold sold off another $ 35 and silver also joined the sell express. I expect more selling ahead for PM.
The trend table is turning red slowly but I would hold on to go short immediately.
While the “Advance Decline” line has turned south and lots of other indicators are signalling sell, I expect a whipsaw. I would be more confident to take action when all the indexes have moved together in one direction. Better be safe than sorry. I have done it in the past, when I have jumped the gun and paid the price. Instead of chasing the trade, let the trade come to us. I keep reminding myself that preservation of capital is the 1st priority. So now I am willing to give up some of the profits to make sure that the trade will move in the right direction.
Thank you for reading http://bbfinance.blogspot.com/ . Please forward / retweet the post to your friends and join me in Twitter. (@BBFinanceblog). As always, I welcome your comments and suggestions.
Too big not to fail
The Economist has a great article, "Too big not to fail" about the Dodd-Frank regulation. Readers of this blog will know I'm no big fan of Dodd-Frank, for example an article in Regulation, collected opeds, and collected blog posts on reform. I've made most of these points before. But to hear it from the liberal-leaning Economist, with very detailed documentation, is good news.
A few delicious quotes:
This is an important point. Most laws are laws. Most of the actual pages of Dodd-Frank are just directives for agencies to write the actual rules.
More importantly, it's not just explicit rules:
Regulation is not "more" or "less" to be poured about. It is "smarter" or "dumber," solving clearly understood market failures with transparent rules, or simply sending busybodies around to muck things up.
We need "smarter." Soon.
A few delicious quotes:
The scope and structure of Dodd-Frank are fundamentally different to those of its precursor laws, notes Jonathan Macey of Yale Law School: “Laws classically provide people with rules. Dodd-Frank is not directed at people. It is an outline directed at bureaucrats and it instructs them to make still more regulations and to create more bureaucracies.” ...And each subquestion presages another rule in the final version.
Take the transformation of 11 pages of Dodd-Frank into the so-called “Volcker rule”, .... In November four of the five federal agencies charged with enacting this rule jointly put forward a 298-page proposal which is, in the words of a banker publicly supportive of Dodd-Frank, “unintelligible any way you read it”. It includes 383 explicit questions for firms which, if read closely, break down into 1,420 subquestions, according to Davis Polk, a law firm.
This is an important point. Most laws are laws. Most of the actual pages of Dodd-Frank are just directives for agencies to write the actual rules.
More importantly, it's not just explicit rules:
But the really big issue ...Officials are being given the power to regulate more intrusively and to make arbitrary or capricious rulings. The lack of clarity which follows from the sheer complexity of the scheme will sometimes, perhaps often, provide cover for such capriciousness.That's putting it mildly. Dodd-Frank is really not about rules at all. It just gives regulators power to decide what you do and how you do it. And it's going to be awfully hard for even the best intentioned regulator not to slide in to protecting from competition the business he's regulating (they are "systemically important" after all), or merging goals ("Nice bank you got there. If you were foreclosing a bit slower we sure could help a bit on consumer financial protection approval of that new credit card.") Or, as the Economist puts it,
For example, the new CFPB will have latitude to determine what type of financial products can be provided to which consumers and at what cost, as well as the right to pursue institutions for acting in an “abusive” fashion (a term with no legal definition). Requirements for “living wills” that encompass hypothetical business plans have to be pored over by regulators; “stress tests” insert government assumptions deep into the decisions banks make about their capital. ... the befuddling form the act gives such ideas unintentionally opens a path to much more state interference.
Loans that might not fit into a category favoured by regulators are being trimmed or withdrawn.
..some well established banks consider themselves better able to handle the costs than smaller or newer ones, particularly those that don’t have cushy relationships with regulators.Mission creep:
....a provision in Dodd-Frank concerning the extraction of minerals from in and around the Congo will mean that they [manfuacturers] will have to begin filing information on their entire supply chain to the SEC. This is officially estimated to affect 1,000-5,000 companies at a cost of $71m. The US Chamber of Commerce thinks it will affect hundreds of thousands. The National Association of Manufacturers estimates it will cost $9 billion-16 billion. Conflict minerals are a disturbing issue. They were not one of the causes of the global financial crisis....This point really nails the fundamental flaw of Dodd-Frank. It never really thought about what the most important core problems were, and how to fix them. Instead, it basically thinks we didn't have "enough" regulation, so proceeds to "regulate" more, and to regulate anything vaguely associated with "finance." But, not knowing what went wrong really, it's approach is just to deputize appointed officials great power to write rules, or, more basically, direct affairs in real time.
Even Dodd-Frank’s creators can bring no similar clarity to its intentions. In 2009 Mr Frank attempted to frame the new law’s goals under four heads: securitisation, compensation, liquidation and systemic risk. But in a single speech his ambitions overflowed to consumer protection and the reform of ratings agencies, too. Ambition is often welcome; but in this case it is leaving the roots of the financial crisis under-addressed—and more or less everything else in finance overwhelmed.
Regulation is not "more" or "less" to be poured about. It is "smarter" or "dumber," solving clearly understood market failures with transparent rules, or simply sending busybodies around to muck things up.
We need "smarter." Soon.
Valuing Common Stocks
The smart money is still bearish. With the Dow Jones hovering just below the 13,000 level, the financial pundits are almost unanimous in their bearish outlook. The exception to the gloom is the optimistic view of the sell side -- the brokers. They like the market here, but then, they pretty much always like the market. It comes with the territory (that is, the job).
So, are the bears right? Is the party over? Is it time to take a pause?
First a caveat. The only honest answer is that no one really knows, no matter how convincing one's argument may be.
That said, my guess is that the pundits are wrong. Common stocks will likely be much higher in value ten years from now than they are now. It would not be a surprise to see stock performance exceed historical levels over the next ten years, which would mean a Dow Jones of over 30,000 by 2022.
But what of the next twelve months? Will the market conveniently sell off or pause to give the late-comers an opportunity to climb aboard? I doubt it.
That doesn't mean that the economy is set to take off. It isn't The economy will continue to plod along with high levels of unemployment and very slow economic growth. Businesses will continue to find ways to avoid employees and taxpayers will look for ways to avoid the tax hikes that everyone knows are likely to be in our future. This means continued economic stagnation, albeit a slowly expanding economy.
This is not an economy that provides opportunity for those with limited economic means. That has been effectively precluded by government policy. But, it is an economy that benefits those who ride on top of the stagecoach. Their ride will get better, stocks will go higher. The Warren Buffetts will do well (and they won't pay higher taxes, even if they face higher tax rates).
So, are the bears right? Is the party over? Is it time to take a pause?
First a caveat. The only honest answer is that no one really knows, no matter how convincing one's argument may be.
That said, my guess is that the pundits are wrong. Common stocks will likely be much higher in value ten years from now than they are now. It would not be a surprise to see stock performance exceed historical levels over the next ten years, which would mean a Dow Jones of over 30,000 by 2022.
But what of the next twelve months? Will the market conveniently sell off or pause to give the late-comers an opportunity to climb aboard? I doubt it.
That doesn't mean that the economy is set to take off. It isn't The economy will continue to plod along with high levels of unemployment and very slow economic growth. Businesses will continue to find ways to avoid employees and taxpayers will look for ways to avoid the tax hikes that everyone knows are likely to be in our future. This means continued economic stagnation, albeit a slowly expanding economy.
This is not an economy that provides opportunity for those with limited economic means. That has been effectively precluded by government policy. But, it is an economy that benefits those who ride on top of the stagecoach. Their ride will get better, stocks will go higher. The Warren Buffetts will do well (and they won't pay higher taxes, even if they face higher tax rates).
Monday, March 5, 2012
The Unthinkable.
The unthinkable happened today! Apple shares fell over 2%. I am shocked!
What will happen to all the Hedge Funds who are charging their clients 2 and 20s. Almost every hedge fund or any fund for that matter is loaded with Apple stock. If there is a disappointment on Wednesday with the new IPad 3 release, the exit doors may prove to be too small.
News of the day was the reduction of growth forecast from China. Once again, I fail to understand the fascination of the commodity sector with everything Chinese. Don’t they know that every figure that comes out of China is made to order to please the politburo? How can anyone believe any number coming out of China in the 1st place and develop a trading strategy? Anyhow, the prices of copper, gold and silver fell along with equities. Nasdaq was the loss leader with 0.86% loss.
But SPX does not have a 1% correction for the 44 days running. While BJ-Tran and Russell 2000 are down and are in the sell zone. Does it mean that people are moving from small cap to big cap? But overall most markets are facing resistance. The following is a chart from Chris Kimble.
Fundamentally, we are not sure what is happening in the Greek PSI front. Will there be a hold out? Will there be a default? We will have to wait till 9th March.
Veteran market observer Ned Schmidt, suggests that making investment decisions based on what turns out to be little more than “conventional wisdom” (which is often anything but wise) presents risks to your wallet. Here then is the world of investment-driving fantasies that Mr. Schmidt has compiled for us to consider:
· Government spending creates prosperity
· Hyperinflation is imminent
· Federal Reserve is running the printing presses
· Keynesian economists are better forecasters than airport cab drivers
· QE1 will produce economic growth
· Inflation is good for gold and silver
· Deflation is good for gold and silver
· The sun is coming up for gold and silver
· QE2 will produce economic growth
· Gold is going to more than $2000 this year (a perennial favorite)
· Silver is going to more than $100 this year (another perennial favorite)
· QE3 is imminent, buy everything!
· US dollar is to implode
· Euro is to implode
· Social networking sites are real companies
· CNBC is more informative than the Cartoon Channel
· Bear market rallies are prices breaking out
· Junior mining stocks are investments
· Apple is a buy at $540, as per 54 out of 59 analysts
· Iran will not build a nuclear weapon
· Vladimir Putin is not a threat to world peace.
Well, that covers almost everything that is important to consider for investment. That is why I would rather follow the price action in the market and not worry too much about the news. In terms of price action, as I said before, we still do not have any sizable pull back and no lower low to confirm a trend change. May be it will be news driven after all.
A strong trend like this one does not reverse on a dime. And even if we have some pull back, it will definitely go back and test the highs. So bears should rather wait for confirmation. Speaking of confirmation, here is today’s trend table.
To end here are some interesting reads:
Thank you for reading http://bbfinance.blogspot.com/ . Please forward / retweet the post to your friends and join me in Twitter. (@BBFinanceblog). As always, I welcome your comments and suggestions.
Sunday, March 4, 2012
Self-education and the school of experience
You may find this next quote about self-education personally relevant, but then again, you may not. From Claude C. Hopkins' autobiography, My Life in Advertising...
Having attended college (for a time), and from my own experiences and observations, I know that this passage rings true. You could substitute the words "advertising man" with the titles "artist", "writer", "economist", or "trader" and still get the same meaning.
You may have heard many entrepreneurs or autodidacts make similar remarks about the value of self-guided education and experience. You may also have heard many experienced, degreed professionals lamenting the need to unlearn much of what they were taught in universities.
Someone mentioned Claude Hopkins in a book review I read today and I found my way to the aforementioned memoir from 1927. I thought I'd share it here with you. Hopefully, it will spur your thoughts on the value of formal education vs. "school of hard knocks".
Maybe we'll find some more chestnuts of wisdom inside. In fact, I'm sure we will, as the above passage came straight from chapter one!
In the meantime, can you think of some important lessons (business, trading, creative, or otherwise) you've learned through self-guided education or your own passage through the school of hard knocks?
Related posts:
1. Marc Faber's advice to young people and the meaning of "success".
2. Michael Bigger: Starting Over.
"...To poverty I owe the fact that I never went to college. I spent those four years in the school of experience instead of a school of theory. I know nothing of value which an advertising man can be taught in college. I know of many things taught there which he will need to unlearn before he can steer any practical course."
Having attended college (for a time), and from my own experiences and observations, I know that this passage rings true. You could substitute the words "advertising man" with the titles "artist", "writer", "economist", or "trader" and still get the same meaning.
You may have heard many entrepreneurs or autodidacts make similar remarks about the value of self-guided education and experience. You may also have heard many experienced, degreed professionals lamenting the need to unlearn much of what they were taught in universities.
Someone mentioned Claude Hopkins in a book review I read today and I found my way to the aforementioned memoir from 1927. I thought I'd share it here with you. Hopefully, it will spur your thoughts on the value of formal education vs. "school of hard knocks".
Maybe we'll find some more chestnuts of wisdom inside. In fact, I'm sure we will, as the above passage came straight from chapter one!
In the meantime, can you think of some important lessons (business, trading, creative, or otherwise) you've learned through self-guided education or your own passage through the school of hard knocks?
Related posts:
1. Marc Faber's advice to young people and the meaning of "success".
2. Michael Bigger: Starting Over.
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